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Old 11-30-2014, 01:43 PM   #21
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OP, you have way, way way, way too much money in cash, particularly for your age. You should be almost fully invested in something, even if you intend on retiring early. I calculated roughly 400k or so in cash, which is just absurd. You are going to get eaten alive by inflation and have opportunity costs galore in the form of missed investments/opportunities.

At 3%, you are losing roughly 1k per month or 12k per year. Just because you don't see it happening doesn't mean that it isn't happening. That is a LOT of money to leave on the table. By comparison, with market returns, you should have easily an additional 30-40k per year extra coming in.

Simple ETF/Index? QQQ and SPY. or get a target retirement fund, but do something, don't just let your spending power just decay away.
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Old 11-30-2014, 02:40 PM   #22
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Those are two good picks, and are just the ETF versions of my go-to domestic stock and bond funds. VXUS is the ETF version of the Total International Stock fund. Your proposed weightings are in the ballpark with the weightings of the Vanguard 2030 Target Retirement fund which is about the time you want to retire. See https://advisors.vanguard.com/VGApp/...ls?fundId=0682 for info on the target AA of their various target date funds as a starting point for deciding your AA. While Vanguard's target date funds include an allocation to international bonds, many people think that is unnecessary.
I did see the VXUS as I was searching. Unfortunately Ameritrade charges commission for that EFT. I did find it's close cousin, VEU as a free ETF. To the untrained eye, it seems really similar in every aspect. Expense ratio, holdings, historical charts, etc. If you think I'm off, let me know!


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Given that you are currently in a very high tax bracket, I would maximize tax deferred savings.

OTOH, f you want to retire at 46 you will need to have enough in taxable accounts to carry your from ER to 59 1/2 when you can draw from tax-deferred accounts without penalty unless you want to do a 72t. You also might consider also doing some post-tax 401k savings not that those can be rolled into a Roth IRA.

I suggest that you sketch out your situation using Quicken Lifetime Planner as it will project drawing from your taxable accounts first and will give you a sense of if your are saving enough in taxable and tax-free accounts to support you from ER to 59 1/2. Or if you want to get more precise about those projections you could buy ESPlanner.
I think i'm pretty well convinced to change my strategy and maximize tax differed holdings. I have to do a little more reading on the 72t, but seems interesting. I have put some information into the online calculators and it seems the maximum distribution possible per year would be quite small (something like $7-8K). More research to do here...
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Old 11-30-2014, 02:44 PM   #23
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OP, you have way, way way, way too much money in cash, particularly for your age. You should be almost fully invested in something, even if you intend on retiring early. I calculated roughly 400k or so in cash, which is just absurd. You are going to get eaten alive by inflation and have opportunity costs galore in the form of missed investments/opportunities.
Fact!

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Simple ETF/Index? QQQ and SPY. or get a target retirement fund, but do something, don't just let your spending power just decay away.
Thanks. I'll have a look at those.
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Old 11-30-2014, 02:46 PM   #24
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You are doing very well at age 34. A couple if things caught my eye.

First, you should max out your 401K. You give away 33% to Uncle Sam of that money you don't put in the 401K. You are paying an extra $3750 in taxes by not maxing out your 401K.
Thanks for attaching the numbers to your post. That really hit home when explained that way.
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Old 11-30-2014, 03:04 PM   #25
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Just want to say I appreciate the comments from everyone. Here is where I ended up so far from all of this:

401K ($146,000): Max it out each year and keep investing as I have historically had been. Investigate 72t distribuions as a possible ER solution.
Traditional IRA ($130,000) - DCA over next 10 months into VTI (50%), VEU (30%), BND (20%)
Roth IRA ($130,000) - DCA over next 10 months into VTI (50%), VEU (30%), BND (20%)
Cash ($90,000) - Keep that floating between $50-90K as emergency fund.
Car Loan ($27,000) - Pay per the 60 month schedule and use money as investment vehicle with expectation to beat 2.2% loan interest rate.

The think I still have to sort out is my individual account. Right now, most of the money that is invested is sitting in FUSVX and a small amount is sitting in a individual stock. Does it make sense to have all my accounts holding the same things? Or does it make sense to have the individual account doing something different? I want to make sure that one is working for me as it will be my primary bridge until I can access all my Roth, IRA & 401K at 59.5.
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Old 11-30-2014, 08:28 PM   #26
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A nit, but from a tax efficiency perspective I think you might be better off to keep your bond allocation in the IRA and/or 401k and divert the difference into the Roth.

See Principles of tax-efficient fund placement - Bogleheads

Also, in your planning you should be able to access some of your Roth monies penalty free before you turn 59 1/2 if the 72t is insufficient.
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Old 12-01-2014, 11:07 AM   #27
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Hi,

Am the same age (34) as you with almost exactly the same net worth (about $780k usd last count). Also single male.

Incidentally, I already did this year what you are planning to do a bit later: gave up 'real work' and taking some time off right. Might not even go back at all, don't know. My spending requirements are a bit lower than the 65k you mentioned, so I can make it work right now.

Anyway: I just want to counterbalance a little bit the enthusiastic market believers here.

Am currently invested about 45% in equities, and 55% in fixed income (high yielding savings accounts and CD ladder mostly).

My target allocation is ultimately more like 85%/15% but I just don't think throwing it all in there is the wisest move. I rather wait for a market correction, or if that doesn't arrive sometime in the next five years, I'll just DCA but over a longer time period (five years probably, not one year as others suggest).

It's all about correctly anticipating regret really. Are you emotionally ready to lose 30% - 50% of your capital? If not, adjust your allocation accordingly and sleep better at night.

Of course, if you have cash yielding 0% you might want to consider moving that portion to a high yielding account or even a CD ladder.

Buying bond funds though I'm not too sure that's a wise thing to do right now, especially with long durations.

Just saying, before you make drastic allocation changes examine the downsides too. Especially since the markets have been running up so hard the past five years.
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Old 12-01-2014, 12:43 PM   #28
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First, congrats on being in a position to consider this at an early age. Others should be shown your journey as an example!!


One more thought you might consider, about 7 years our from my target FIRE date, I started buying a CD every year to fund about 1/2 of my needed retirement draw. I planned on doing this for 5 years, but I have 2 more years before FIRE and I will continue to buy a CD each of the next 2 years. You may want to think about this for part of tour initial retirement funding. The switch from how to amass a big pile of money to how to safely draw on that pile for living expenses is a big change for me. This having a part of my plan already in place is comforting to me. Even if I mess up other parts, this will give me some fixed retirement income while my equity pile grows.


At some point you need to do some planning on how to get the living expenses out and it can change your investment strategy. Looks like some have already suggested ideas with that in mind, and you have by looking how to get $$ out of the tax advantaged funds without a penalty. If you contribute to a ROTH account, after 5 years you can withdrawal your contribution tax and penalty free. You would give up on the tax savings now but that can give you some flexibility for those 13 years you would need to fund before penalty free withdrawals.


Just one more option.
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Old 12-04-2014, 08:06 PM   #29
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Hi,

Am the same age (34) as you with almost exactly the same net worth (about $780k usd last count). Also single male.

Incidentally, I already did this year what you are planning to do a bit later: gave up 'real work' and taking some time off right. Might not even go back at all, don't know. My spending requirements are a bit lower than the 65k you mentioned, so I can make it work right now.

Anyway: I just want to counterbalance a little bit the enthusiastic market believers here.

Am currently invested about 45% in equities, and 55% in fixed income (high yielding savings accounts and CD ladder mostly).

My target allocation is ultimately more like 85%/15% but I just don't think throwing it all in there is the wisest move. I rather wait for a market correction, or if that doesn't arrive sometime in the next five years, I'll just DCA but over a longer time period (five years probably, not one year as others suggest).

It's all about correctly anticipating regret really. Are you emotionally ready to lose 30% - 50% of your capital? If not, adjust your allocation accordingly and sleep better at night.

Of course, if you have cash yielding 0% you might want to consider moving that portion to a high yielding account or even a CD ladder.

Buying bond funds though I'm not too sure that's a wise thing to do right now, especially with long durations.

Just saying, before you make drastic allocation changes examine the downsides too. Especially since the markets have been running up so hard the past five years.

Thanks Totoro - Gave up "real work". Nice job! I may take some advice of the CD ladder with some of my cash allocation. Another option would also be a money market. I don't think I'll extend beyond my cash allocation and put more into a lower interest bearing investment. I think that for at least the next year, the market will continue on a positive trend that will beat anything a CD could offer. I'm not saying there won't be a correction throughout the year...probably will....but I don't see a big correction. Timing is in-fact everything.
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Old 12-04-2014, 08:17 PM   #30
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First, congrats on being in a position to consider this at an early age. Others should be shown your journey as an example!!


One more thought you might consider, about 7 years our from my target FIRE date, I started buying a CD every year to fund about 1/2 of my needed retirement draw. I planned on doing this for 5 years, but I have 2 more years before FIRE and I will continue to buy a CD each of the next 2 years. You may want to think about this for part of tour initial retirement funding. The switch from how to amass a big pile of money to how to safely draw on that pile for living expenses is a big change for me. This having a part of my plan already in place is comforting to me. Even if I mess up other parts, this will give me some fixed retirement income while my equity pile grows.


At some point you need to do some planning on how to get the living expenses out and it can change your investment strategy. Looks like some have already suggested ideas with that in mind, and you have by looking how to get $$ out of the tax advantaged funds without a penalty. If you contribute to a ROTH account, after 5 years you can withdrawal your contribution tax and penalty free. You would give up on the tax savings now but that can give you some flexibility for those 13 years you would need to fund before penalty free withdrawals.


Just one more option.
Hi Retireby90. Nice name. ha! Thanks for the congrats. A little bit of luck and a lot of hard work. Anyway, yes figuring out how to fund the gap between ER and when I can draw from 401k/IRA/ROTH is on my mind. I guess your suggestion is one way to do it to ensure a stable income. Similar to the CD ladder that was shown in the post above yours.

In terms of the ROTH idea. It is a good idea, but my hands are pretty much tied in terms of any further ROTH contributions, I think. All of the contributions in there were put in prior to me exceeding the maximum allowable income limits the IRA has set. Am I misunderstanding something?
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Old 12-04-2014, 08:58 PM   #31
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A nit, but from a tax efficiency perspective I think you might be better off to keep your bond allocation in the IRA and/or 401k and divert the difference into the Roth.

See Principles of tax-efficient fund placement - Bogleheads

Also, in your planning you should be able to access some of your Roth monies penalty free before you turn 59 1/2 if the 72t is insufficient.
Hi Pb4uski. OK. This is very interesting. I did not realize this. So, Bonds to tax deferred (or tax free) because most returns come from dividend yield...and if it is in a taxable account is taxed as ordinary income. Assuming that at time of withdraw the tax rate is lower, this is a benefit.
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Old 12-04-2014, 10:57 PM   #32
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See if your company allows after tax contributions to your 401k...
After tax contributions are above and beyond the $17500 tax deferred maximum. It depends on the company if it is allowed or not. Some companies allow up to 75% from what I've seen, mine only offers 9%, but hey, it is better than nothing.
After tax contributions can be rolled over to a Roth 401k while on service, or a Roth IRA when you terminate service.
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Old 12-05-2014, 10:15 AM   #33
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In terms of the ROTH idea. It is a good idea, but my hands are pretty much tied in terms of any further ROTH contributions, I think. All of the contributions in there were put in prior to me exceeding the maximum allowable income limits the IRA has set. Am I misunderstanding something?
One option to check into for the ROTH is you can make a non-deductible IRA contribution no matter how much you make, then you can convert that IRA to a ROTH right away and only have to pay taxes on the earnings. One possible glitch is if you have other traditional IRAs with contributions that were deducted on you taxes. IRS has rules that say if you take $10K from a traditional IRA you must partition that into deductible and non-deductible portions, based on your entire traditional IRA holdiings. Say you have $90K in deductible IRA and $10K in non-deductible IRA, 90% of any draws are deductible. Others may reply with more information on how the mechanics work, but if you don't have deductible IRA then you could fund a non-deductible and convert to get $$ into a ROTH.
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Old 12-06-2014, 04:38 PM   #34
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See if your company allows after tax contributions to your 401k...
After tax contributions are above and beyond the $17500 tax deferred maximum. It depends on the company if it is allowed or not. Some companies allow up to 75% from what I've seen, mine only offers 9%, but hey, it is better than nothing.
After tax contributions can be rolled over to a Roth 401k while on service, or a Roth IRA when you terminate service.
I had no idea you could do this. So you can contribute after tax money into a 401K, then move that after tax money into a ROTH with no special charges, etc.? I have to look into this. My company does in-fact allow up to 75% after tax $ to be contributed to the 401K.
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Old 12-06-2014, 05:43 PM   #35
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Yup. Bonanza. Get it while you can.

IRS Issues 401(k) After-Tax Rollover Rules - Forbes

Isolating Basis for a Roth Conversion - Fairmark.com Fairmark.com
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Old 12-06-2014, 05:54 PM   #36
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So my only thought is the OP went from huge cash view to fully invested (which is correct).
But why was he in so much cash in the first place?
If it was because he is one of those fearful types, then he will be the kind to sell after stocks drop 40% and go back to cash.
If there is any possiblility of that happening, prior to all his investment choices, he should pay off the car with cash, just to prevent him from paying it off with 40% less money later.
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Old 02-15-2015, 06:17 AM   #37
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First, congrats on being in a position to consider this at an early age. Others should be shown your journey as an example!!


One more thought you might consider, about 7 years our from my target FIRE date, I started buying a CD every year to fund about 1/2 of my needed retirement draw. I planned on doing this for 5 years, but I have 2 more years before FIRE and I will continue to buy a CD each of the next 2 years. You may want to think about this for part of tour initial retirement funding. The switch from how to amass a big pile of money to how to safely draw on that pile for living expenses is a big change for me. This having a part of my plan already in place is comforting to me. Even if I mess up other parts, this will give me some fixed retirement income while my equity pile grows.
Hi again RetireBy90 - another question for you on CD's. I was looking at CD's and CD ladders for my cash allocation and was targeting 1 year CD's. Seems the interest rate is about 1.2%. Does that seem right to you? Or are you doing something different to achieve better rates? Thanks!
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Old 02-15-2015, 06:29 AM   #38
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One option to check into for the ROTH is you can make a non-deductible IRA contribution no matter how much you make, then you can convert that IRA to a ROTH right away and only have to pay taxes on the earnings. One possible glitch is if you have other traditional IRAs with contributions that were deducted on you taxes. IRS has rules that say if you take $10K from a traditional IRA you must partition that into deductible and non-deductible portions, based on your entire traditional IRA holdiings. Say you have $90K in deductible IRA and $10K in non-deductible IRA, 90% of any draws are deductible. Others may reply with more information on how the mechanics work, but if you don't have deductible IRA then you could fund a non-deductible and convert to get $$ into a ROTH.
Hi RetireBy90 - I do have a Traditional IRA, that I rolled over from a previous employers 401K some time ago (see my allocation table in one of the earlier posts). Has about 130K in it now. So, with that said, I don't think what you propose above is going to work for me. I'll end up paying a bunch of taxes. Or?

I think the best option for me is to put post tax dollars into my company's Roth 401K. I can invest up to 75% of my earnings. Then, if I ever leave the company I can roll that into a Roth IRA...I think.
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Old 02-15-2015, 06:31 AM   #39
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See if your company allows after tax contributions to your 401k...
After tax contributions are above and beyond the $17500 tax deferred maximum. It depends on the company if it is allowed or not. Some companies allow up to 75% from what I've seen, mine only offers 9%, but hey, it is better than nothing.
After tax contributions can be rolled over to a Roth 401k while on service, or a Roth IRA when you terminate service.
Hi Molof. I think this is my best bet for tax advantage. My company does allow up to 75% into the ROth 401k. If I ever leave, I would plan on rolling that into a Roth IRA. Thanks for the suggestion.
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Old 02-15-2015, 06:37 AM   #40
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Hi Pb4uski. I did some looking into this and call my 401K broker my company uses. They told me I can in-fact do this, but I cannot do it while I am in-service (an employee). While I am an employee I can contribute up to 75% of my after tax dollars into a Roth 401K and can invest in the same funds that are available to my tax deferred 401K. When/if I leave the company I can at that time roll the after tax money into a Roth IRA. And of course, I can roll the tax deferred money into a traditional IRA, if I want.

Seem correct?
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